Saturday, June 12, 2010

Pension Test Cases to Watch

Perhaps the most important judicial news seems to have escaped much coverage. (This is why I prefer the print edition of the paper, I would never have stumbled across this article otherwise.) Both the Colorado and Minnesota legislatures are being challenged in court over reductions they made in cost of living adjustments to their state employee pension plans. From the Wall Street Journal article by Jeannette Neumann:

In February, Colorado lawmakers passed a bill that reduced the pension system's cost-of-living adjustment from a fixed 3.5% a year to a maximum of 2%—but possibly less for current and future retirees.

Similarly, Minnesota reduced their automatic cost of living increase from 2.5% to 1%.

In response, Colorado and Minnesota have been hit by lawsuits filed by retirees, who claim the changes violate state law. Those retirees have "lived up to their end of the bargain, and the state is not living up to theirs," says Stephen Pincus, a Pittsburgh lawyer representing plaintiffs in both states.

First, a cost of living adjustment that is greater than the rate of inflation? This makes no sense to me, but I don't know anything about the law or case law here. Regardless, these cases are very important to watch. If the courts rule against the states, they are basically saying that employee pension benefits are guaranteed over and above any other spending. Such an outcome seems unlikely to survive, but if it did, it would not bode well for states seeking to ease budget woes. If I was in the legislature, this would be one of the first places I would look. Reducing an automatic increase in pensions does nothing to hurt the delivery of current services.

I am fairly certain that the pensioners will not be able to sue in federal court under the doctrine of sovereign immunity. The article states that the pensioners are suing under a claim that the changes violate state law. But if the changes violate state law, and the legislature approved and the governor signed the change, is that not an amendment to law? Unless the state constitution prevents this change, I don't see how the pensioner win their case. I am hoping for some legal analysis from Eugene Volokh, because I am having a hard time figuring this one out, and I know it is important.

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